NOVL Novell analyst conference summary May 31, 2006

NOVL
Novell, Inc.

Summary

conference date: May 31, 2006
for quarter ending: April 30, 2006 (2nd fiscal quarter)

Overview: Despite paddling furiously, Novell continues its gentle decline.

Basic data:

Revenue of $278 million was up 1.5% sequentially from $274 million the prior quarter and down 6.4% from $297 million year-earlier. GAAP earnings were $3 million or 1 cent per share, well up from year-earlier losses of $16 million or .04 per share. Foreign exchange rates negatively impacted revenue. Excluding Celerant, revenues were $239 million.

Cash ended at $1.3 billion, down $347 million from the prior quarter, mainly due to stock repurchases. Cash flow from operations was negative $24 million.

Guidance:

Excluding Celerant because it is being sold, revenues will be $239 to $247 million for this quarter. Non-GAAP earnings will be .03 per share, the same as this quarter. GAAP earnings will likely be break-even.

Conference Highlights:

35 million shares repurchased at a cost of $267 million. The purchase plan was completed (totalling $400 million) after the end of the quarter.

Open Platform Solutions revenues were $57 million, up from $20 million year-earlier. $61 million revenue was from System, Security and Identity. Suse Linux dropped from $16 million to $2 million because of decision to make it available for free. Netware product sales continued their long decline.

Core business (excluding Celerant) gross margin 66% up 2% from year-earlier. Operating expenses were $156 million, down 5% from year-ago but up 5% from Q1.

$77 million was received for Celerant (recently, current quarter).

e-Security revenue will be about $2 million this quarter.

Satisfied with overall results and making progress on goals. Suse Linux business and OES (Open Enterprise Server) now represent 80% of shipments. Only 20% are still Netware. Customer response to open Linux has been outstanding. 25% increase in applications supported by Suse. Alliances with Dell, Oracle, AMD and others.

Identity market continues to expand. Has entered security management market with e-Security purchase. Workgroup solutions: Netware/OES revenues have been disappointing. Workgroup Suite began shipping May 9th; sells at a 70% discount to Microsoft's equivalent.

Q&A:

Linux revenue decline? Partly due to signing longer-term contracts with no revenue recognition beyond invoice for current year. Also multi-year contracts get discount.

Netware revenues declined from year-earlier $60 million to $11.5 million due to conversions to OES.

Red Hat acquisition of JBoss? Novell has been supporting JBoss and Geronimo app servers; will continue to support both. Novell has a broader product line and tries to bundle products for sale.

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